Foreign transaction fees vs. currency conversion fees: What are the differences?
Key takeaways
- Review your credit card fee policies before traveling outside the U.S. to avoid surprise costs.
- If needed, apply for a credit card without travel-related surcharges and fees.
- To avoid high conversion fees, reject dynamic currency conversion (DCC) at payment terminals and pay in local currency when merchants offer it.
- Understand potential ATM fees abroad and what foreign ATMs are within your banking network.
Traveling abroad allows you to immerse yourself in new cultures, cuisines and experiences. But while the memories might be priceless, the costs of using your credit card overseas can add up fast if you’re unprepared. From foreign transaction fees to dynamic currency conversion charges, these hidden expenses can quickly derail your travel budget.
Understanding these fees and when they apply can help you avoid unnecessary expenses during international travel. By reviewing your credit card policies before departure and using travel-focused cards while abroad, you can minimize or eliminate these extra costs.
What are foreign transaction fees?
A foreign transaction fee is a surcharge that your card issuer or bank applies when you make a purchase in a foreign country or with an international merchant online. While not all credit cards charge this fee, those that do typically add 1 to 3 percent to each transaction, which can add up quickly.
For example, if you charge a $1,000 hotel stay in another country and your card has a 2 percent foreign transaction fee, you’ll see an additional $20 charge on your statement. These fees can quickly accumulate during your travels and may push you over budget if you haven’t planned for them.
Additionally, foreign transaction fees typically don’t count toward credit card rewards like cash back, so it’s a net negative on your balance.
What are currency conversion fees?
Currency conversion fees, also called foreign currency exchange fees, come in two forms. Both involve charges for converting one currency to another during an international transaction.
Credit card processor currency conversion fees
When your credit card processor handles the currency conversion, they typically charge around 1 percent of the transaction amount. This fee appears on your statement after the purchase posts, so you won’t know the exact cost until later.
If your credit card doesn’t charge foreign transaction fees, the card issuer may be responsible for the currency conversion fee.
Dynamic currency conversion fees
Dynamic currency conversion (DCC) is a separate fee that merchants charge for converting purchases into your home currency. The merchant’s payment service provider usually sets these fees, which typically include a markup benefiting both the provider and the merchant.
Merchants must ask your permission before applying DCC. You’ll usually see this option on the payment terminal. If you choose to convert to U.S. dollars, you’ll pay a fee ranging from 3 to 12 percent of the transaction amount. So, for example, the DCC on a $1,000 purchase could come to as much as $120.
While DCC lets you immediately see the exact amount in dollars on your receipt, this convenience comes at a premium.
Comparing foreign transaction and currency conversion fees
Sometimes, card issuers combine foreign transaction fees and currency conversion fees into a single charge, labeled as a foreign transaction fee or international transaction fee. You might face both fees on a single purchase depending on your card issuer and the merchant.
| Fee type | Transaction type | Charged by | Typical rate |
| Foreign transaction fee | Transactions in foreign countries or online with foreign merchants | Credit or debit card issuer | 2 to 3 percent |
| Dynamic currency conversion fee | Transactions converting one currency to another at the payment terminal | Merchant’s service provider | 3 percent to 12 percent |
| Currency conversion fee | Transactions that convert one currency to another | Credit network or processor | 1 percent |
Getting hit with both types of fees
So, are there cases where you’re hit with both fees at once? Unfortunately, yes. Consider this scenario: You’re dining at a restaurant in Spain, and your bill comes to 100 euros. When paying by credit card, the terminal asks if you want to pay in U.S. dollars or the local currency, euros.
Choosing U.S. dollars triggers dynamic currency conversion, which might seem convenient since you’ll see the exact in a familiar currency. However, with a 12 percent DCC fee, you’ll pay an extra 12 euros. Plus, if your card charges a foreign transaction fee (2 to 3 percent), your costs increase even further.
By paying in euros instead, you might only face your card’s standard currency conversion fee (1 percent) and foreign transaction fee (2 percent), adding just a few euros to your bill. Better yet, you could avoid these fees entirely with the right travel credit card.
The bottom line
Avoiding unnecessary fees while traveling abroad can save you money and let you focus on enjoying your trip rather than worrying about hidden charges. By understanding the differences between foreign transaction fees and currency conversion fees, you can take proactive steps to minimize or eliminate these costs.
Choosing the right travel credit card, declining dynamic currency conversion and using fee-free ATMs are simple yet effective strategies to keep your travel expenses in check. Whether you’re planning your next international getaway or making purchases from merchants outside of the U.S. online, being informed and prepared can make all the difference.
